Investor Survey Finds Weakening Sentiment among Chinese Outbound Real Estate Investors as Global Asset Selloff Mounts

HONG KONG, CHINA - Media OutReach - 25 February 2019 - Mainland Chinese Real Estate Investment Overseas (MCREIO) hit a four-year low of US$15.7 billion in 2018, a marked decline of 63% y-o-y amid weakening Chinese investor sentiment, tightened policy control and growing economic headwinds, according to Cushman & Wakefield Research's 2019 Outbound Investor Intention Survey.

• At the same time of reining in their spending on overseas real estate, data from Real Capital Analytics (RCA) show Chinese investors sold off over US$12 billion of overseas assets in 2018, indicating the start of a massive shift in activity now weighted more heavily towards disposals. The frenzy of disposal activity was driven primarily by ongoing stiff policy control back home, led by a clampdown on lending real estate developers and investors (Chart 1).
• Reinforcing the significant slowdown in momentum for overseas investment, 84% of investors in China surveyed by Cushman & Wakefield Research indicated that they had either frozen or reduced their overseas real estate allocations over the past year in comparison to 2017.
• By destination, the U.S. and UK held on to their top-tiered positions, ranking No. 1 and 3 in terms of sentiment according to the survey results, despite ongoing U.S.-China trade frictions and Brexit uncertainties (Chart 2).
• According to RCA/Cushman & Wakefield Research data, the U.S. recorded US$2.3 billion worth of acquisitions against US$3.1 billion of disposal volume, suggesting a net outflow of mainland Chinese real estate capital from the U.S.
• Elsewhere, Hong Kong took first place for the second consecutive year with US$9.5 billion of investment despite a 20% y-o-y decrease in MCREIO volume, according to RCA/Cushman & Wakefield Research data.
• On the acquisition front, the top two sectors of interest remained Office and Residential with Senior Care leaping three places to take 3rd place in Cushman & Wakefield Research's survey. Sectors shifting down a gear in terms of sentiment were led by the Hotel sector, where interest plunged 50%.
• In 2019, Chinese outbound investment is forecast to remain flat amid the expectation that a tight real estate lending environment will remain in place and continue to restrict deployment of mainland Chinese capital globally.
• A clear trend of caution has emerged looking ahead to 2019, reflected in the current increasing difficulty in deployment of capital. According to the survey results, 65% of respondents said that they were significantly or severely impacted by the prevailing outbound policy control, sharply up from 50% in 2017. Moreover, only 18% of respondents said they believe the lending environment will improve in 2019.

James Shepherd, Managing Director of Greater China Research, Cushman & Wakefield, said: "We expect that Chinese banks' real estate lending may remain tight for much of the year ahead, creating an environment that will clearly continue to restrict deployment of mainland Chinese capital in general irrespective of geographic location. In a time of tight liquidity back home in China, Chinese investors are disposing of assets at a global level including China."

Shepherd added: "Contrary to some market commentators who have assumed that disposal activity in the U.S. and UK has been a direct result of prevailing political turmoil, the simple fact is that outside China MCREIO's existing portfolios are heavily weighted to the U.S. and UK, and therefore disposal volumes appear remarkably high in these markets."

Shepherd continued: "Ever popular in the hearts of Chinese investors, Australia had a strong showing, overtaking the UK for third place in terms of real estate investment in 2018."

Jason Zhang, Head of China Outbound Investment & Advisory Services, Cushman & Wakefield, said: "Survey results, particularly on sentiment by destinations, views on RMB appreciation and global gateway property prices, have shown MCREIOs are becoming more prudent and selective under the guidance of the government investment policies."

Zhang added: "2019 will continue to be a 'quiet' year in terms of investment volumes but expect to see more M&A activities in real estate operation platforms together with their portfolios."

Chart 1－ MCREIO Annual Acquisition vs Disposal

Source: RCA / Cushman & Wakefield Greater China Research

Chart 2－ C&W Investor Intention Survey -- 2019 MCREIO Sentiment by Destination

Source: Cushman & Wakefield 2019 Investor Intention Survey

Cushman & Wakefield Research's 2019 Outbound Investor Intention Survey collected responses from around 150 of the top Mainland Chinese Real Estate Investors Overseas. The survey, conducted during the final quarter of 2018, received responses from 51 such investors, representing more than RMB280 billion of offshore capital.

Click HERE to view the full report.

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